The E-axes Forum on Climate Change, Macroeconomics, and Finance

Irene Monasterolo

“The Good, the Bad and the Hot House World: Conceptual Underpinnings of the NGFS Scenarios and Suggestions for Improvement”

Event description

Irene Monasterolo will present findings from her paper (with  María J. Nieto and Edo Schets) on “The Good, the Bad and the Hot House World: Conceptual Underpinnings of the NGFS Scenarios and Suggestions for Improvement.”

From the abstract:

Climate mitigation scenarios are an essential tool for analyzing the macroeconomic and financial implications of climate change (physical risk), and how the transition to a low-carbon economy could unfold (transition risk). The Network for Greening the Financial System (NGFS) has co-developed a set of climate mitigation scenarios for climate financial risk assessment. Despite the important role that these scenarios play in climate stress tests, the understanding of their main characteristics and limitations is still poor. In this paper, we contribute to filling this gap by focusing on: the comparison of the process-based Integrated Assessment Models (IAMs) used by the NGFS with alternative models; the role of Representative Concentration Pathways (RCPs) and Shared Socioeconomic Pathways (SSPs) in shaping the scenario narratives, and their shortcomings; the interpretation and sensitivities of carbon price pathways; and, the comparison with other climate mitigation scenarios. We then derive lessons on how to increase the relevance of the NGFS scenarios. These include updating the SSP narratives; considering the potential trade-offs between different types of climate policies; assessing acute physical risks and their compounding; integrating physical risks within transition scenarios; and, accounting for the role of the financial sector and investors’ expectations.
Moderator:

Anastasia Pappas
Founder, E-axes Forum

Irene Monasterolo

Irene Monasterolo is Professor of Climate Finance at EDHEC Business School and Research director “Finance impact on climate mitigation and adaptation” program at EDHEC Risk Climate Impact Institute in Nice (FR). In 2017, Irene published the climate stress test of the financial system that introduced the framework to translate climate scenarios into adjustment in financial valuation and portfolio risk. It includes the Climate Policy Relevant Sectors, a science-based classification of assets’ exposure to climate transition risk that has been applied by several financial supervisors and institutions including the European Central Bank. Irene’s research has also investigated under which conditions green finance policies can foster the low-carbon transition while mitigating trade-offs with the EIRIN model, which has been applied by the World Bank to assess compound climate and COVID-19 risks, and by the European Central Bank to assess the double materiality of climate risks. Irene’s research has been published in top tier journals including Science and Nature Climate Change. She has collaborated with leading financial institutions, including the European Banking Authority, the European Insurance and Occupational and Pension Authority (EIOPA) and the G20 on climate financial risk disclosure and risk assessment.

Paper and slides

The Good, the Bad and the Hot House World: Conceptual Underpinnings of the NGFS Scenarios and Suggestions for Improvement (Paper)

The Good, the Bad and the Hot House World: Conceptual Underpinnings of the NGFS Scenarios and Suggestions for Improvement (Slides)

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